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Housing shadow prices in an inundation prone suburb

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For urban areas already exposed to flooding risk, the prospect of increased population densities and of more frequent extreme weather associated with climate change is alarming. Proactive adaptation, including changes to planning schemes, can reduce the risks faced in such urban areas. However empirical information detailing the benefits of proactive adaptation is limited. Further, in order to engage and motivate residents within exposed areas to participate in any adaptation, how (and when) adaptation measures will impact on individuals need to be understood. To inform such thinking, we present here a detailed case study of climate adaptation to inundation. We present a hedonic approach that evaluates property values and preferences in an inner city suburb in Brisbane, Australia, which contains areas that are in a floodplain. Using a dataset specially constructed by the authors, the study defines a continuous effect of flooding such that discount on property prices depends on its vertical distance relative to its 1-in-100-year flood level. The discount is of the order of 5.5% per metre below the 1-in-100 year flood level. Due to the detailed hedonic characteristics included in the dataset, the study also provides estimates of the shadow prices of housing characteristics and distances to amenities (such as bus stops, train stations, parks and bikeways). Such factors need to be considered when holistically assessing the dynamics of urban areas in response to planning changes.

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Paper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 429.

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Date of creation: 2011
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Handle: RePEc:qld:uq2004:429

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Web page: http://www.uq.edu.au/economics/
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  1. G. Sirmans & Lynn MacDonald & David Macpherson & Emily Zietz, 2006. "The Value of Housing Characteristics: A Meta Analysis," The Journal of Real Estate Finance and Economics, Springer, vol. 33(3), pages 215-240, November.
  2. Ghebreegziabiher Debrezion & Eric Pels & Piet Rietveld, 2011. "The Impact of Rail Transport on Real Estate Prices: An Empirical Analysis of the Dutch Housing Market," Urban Studies, Urban Studies Journal Limited, vol. 48(5), pages 997-1015, April.
  3. Sorada Tapsuwan & Gordon Ingram & Michael Burton & Donna Brennan, 2009. "Capitalized amenity value of urban wetlands: a hedonic property price approach to urban wetlands in Perth, Western Australia ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(4), pages 527-545, October.
  4. James Hansen, 2009. "Australian House Prices: A Comparison of Hedonic and Repeat-Sales Measures," The Economic Record, The Economic Society of Australia, vol. 85(269), pages 132-145, 06.
  5. Speyrer, Janet Furman & Ragas, Wade R, 1991. "Housing Prices and Flood Risk: An Examination Using Spline Regression," The Journal of Real Estate Finance and Economics, Springer, vol. 4(4), pages 395-407, December.
  6. Okmyung Bin & Jamie Brown Kruse & Craig E. Landry, 2008. "Flood Hazards, Insurance Rates, and Amenities: Evidence From the Coastal Housing Market," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(1), pages 63-82.
  7. St├ęphane Hallegatte & Jan Corfee-Morlot, 2011. "Understanding climate change impacts, vulnerability and adaptation at city scale: an introduction," Climatic Change, Springer, vol. 104(1), pages 1-12, January.
  8. Michael Ball, 2011. "Planning Delay and the Responsiveness of English Housing Supply," Urban Studies, Urban Studies Journal Limited, vol. 48(2), pages 349-362, February.
  9. Daniel, Vanessa E. & Florax, Raymond J.G.M. & Rietveld, Piet, 2009. "Flooding risk and housing values: An economic assessment of environmental hazard," Ecological Economics, Elsevier, vol. 69(2), pages 355-365, December.
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